Spend some time in Mexico, and you’ll start to notice something interesting: busy ATMs. Spend some more time watching, and you’ll realise that the ones inside supermarkets are particularly popular. Drawing cash inside shopping centres is safe and convenient – but why withdraw it at all if the shops take cards? In a country like Mexico (an upper-middle-income country that has made remarkable financial inclusion progress) this is surprising. This report shows two out of every three Mexican adults now have a formal financial product, and card uptake has soared when some banking agents began offering bank accounts. So why do those people you spent time observing – and millions of others like them – still prefer cash?
Even more sobering is the finding from our recent Mexico #FinNeeds study that when people run out of money, when they lose their job or get sick, it’s not formal financial service providers they turn to but their friends and family (or their own money under the mattress).
This is leaving consumers worse off. Social networks, though flexible and familiar to reach out to, can only provide limited support. Two-thirds of respondents in our #FinNeeds survey had still not recovered three months after suffering a financial shock.
This exposes the vulnerability of those who live without formal financial services such as insurance, credit or savings products. Why aren’t they using the financial sector to help them become more resilient, to manage their day-to-day financial lives or to plan for life goals?
Financial services are not meeting the financial needs of consumers
The short answer is that formal financial services are not doing a good job competing with informal alternatives on ease of access and flexibility (think minimum account balances and fixed credit repayment terms). A bank also does not give the same comfort and sense of belonging as a social circle. Neither can digital financial services yet match cash as a “free”, fungible and convenient payment mechanism where the user feels more in control of their finances.
A blended approach to data provides deeper insights
By drawing on both survey data and bank transaction data for the same customers, we were able to cluster consumers based on their usage and demographic profiles. Six distinct groups emerged, including a small “digital elite” who prefer cashless options and a larger group of “aspirational youth” who use cash and informal or social mechanisms to meet almost all their financial needs, despite being considered relatively active bank account users. In fact, all groups (apart from the digital elite) meet their financial needs largely outside of the formal financial sector.
Large untapped opportunities
This is an opportunity even more than it is a challenge. The formal financial sector still has a major role to play in meeting the financial needs of Mexicans and many financial institutions are already innovating with new types of product offerings, channels and apps, often in partnership with trusted retail brands that customers can relate to. Yet the imperative remains to grow the role of the formal sector in building liquid and resilient households that are empowered to meet their personal and business goals.
Mimicking informal alternatives
Instant payments have introduced a digitisation tipping point elsewhere in the world. Could the Mexican Government’s plan to launch an instant payment platform, CoDi, do the same for Mexico? Will it change merchant’s incentives to accept digital versus cash payments? And what about the other financial needs?
It is clear from our research that, to sway consumers, you have to provide them with the same convenience, flexibility and sense of belonging as informal and social alternatives – and even better benefits. Otherwise the rational choice would be to stick to current default behaviours.
A long-term play for impact
The Mexican authorities have taken the financial inclusion impact challenge to heart. The Ministry of Finance is busy revisiting the national financial inclusion indicators and targets, the banking regulator (CNBV) is continually working on finding the best ways to measure financial inclusion, and the central bank is considering how best to measure financial health. The insights2impact #FinNeeds indicators provide a lens for approaching these questions from a customer-centric perspective, understanding that people use financial services as a means to an end. The means they choose (and don’t choose) provide important insights for policy makers and the financial sector. In other words, how can we better serve people’s financial needs?